Christine Baker
[deleted]
Fax: 571-222-1000
Tel: [deleted]
Federal
Trade Commission/Office of the Secretary
Room
H-159 (Annex N)
Via e-mail to FACTAscoringstudy@ftc.gov
Re:
FACT Act Scores Study, Matter No. P044804
A.
Introduction
I am thrilled to see that Congress ordered the FTC to study credit scoring. Unfortunately, it appears that the legislators are not at all familiar with credit scores and the enormous damages inflicted on the disadvantaged, not only due to absurd score factors, but also due to blatant violations of the Fair Credit Reporting Act (“FCRA”) and the so-called regulators’ refusal to enforce consumer protection laws.
I believe that ALL people deserve equal opportunities, including the disadvantaged, the people who are struggling to get by, often working 2 jobs, self-employed, ill, old, single parents or otherwise handicapped – regardless of race, color, etc. Many, but not all disadvantaged are also covered by the ECOA.
Instead of attaching numerous documents, I am including the links to relevant documents posted on the web.
To gain a basic understanding of credit scoring practices, please read “Credit Scoring Basics,” posted at http://www.fight-back.us/forum/index.php?showtopic=47.
Congress should immediately:
This should be accomplished by the end of
2004, not 2005.
I have already conducted extensive research for several years, the regulators only need to verify the authenticity of my documentation and apply a little bit of common sense.
An ECOA credit scoring study could possibly
be useful AFTER:
According to Fair Isaac, its FICO scores
are utilized in over 75% of all credit decisions.
Why
should a credit score be lowered because a consumer applied for a job or moved
and ordered electric, water and telephone service?
According to a credit score designer, one
inquiry can lower the scores by 35 points!
In my own extensive research I learned that a single inquiry often lowers already low scores by 15 to 25 points while it has no impact at all on scores above 700.
On
The
damages caused by Charlie pale compared to the damages inflicted on hard
working Americans while you “study” the effects of credit scoring.
Consumers lose their homes to foreclosure, lose their savings, lose all hope – on a daily basis and nobody cares.
Financial
problems are major contributing factors to divorces, spousal and child abuse,
suicides and murders.
It is time for immediate action!
B. The Regulators must be Ordered to Enforce
Consumer Protection Legislation
1. Capital One maliciously disregards the FCRA
with the regulators’ approval
Capital
One has almost 50 million credit card accounts and specializes in “sub prime” (predatory)
lending to consumers with bad credit. Capital
One deliberately ignores the FCRA requirement for complete and accurate
reporting, resulting in artificially low credit scores for their customers.
One
of the most important FICO score factors is the Balance/Limit ratio.
The
Fair Isaac credit scoring software utilizes the balances and credit limits for
all revolving open accounts as well as closed and charged off revolving accounts
with balances as reported by the credit reporting agencies. (“CRAs.”)
Instead
of reporting the credit limit, Capital One reports the amount “most owed” and subsequently
increases the ratio and lowers the credit scores.
The
calculation for a credit report with only one reported revolving account:
Credit
limit: $1,000
Most
owed (highest balance): $100
Current
balance: $100
The
B/L ratio: 100% for a Capital One account instead of 10%.
The difference in credit scores:
Depending
on the other score factors, the scores are probably lowered by over 50
points and possibly over 100 points.
Capital
One is maximizing its profits. Due to
the artificially low credit scores, consumers are declined by other credit card
issuers with more favorable terms and the Capital One customers have to
continue to pay high rates and fees to Capital One.
Why
are the FTC, the Federal Reserve Bank of
The
summary of my efforts to have the regulators take action and order Capital One to
comply with the FCRA:
1)
In 2002 I submitted my complaint about the Capital One
refusal to report the credit limits to the FTC.
2)
The FTC referred my complaint to the FRB Richmond.
3)
James McAfee, General Counsel and Senior Vice President,
FRB Richmond, faxed his promise to investigate in November 2002.
4)
Mr. McAfee ignored my subsequent inquiry and did not
respond.
5)
In 2003 I named Capital One, the FTC, the FRB Richmond
and Mr. McAfee in my
6)
The FRB Richmond and Mr. McAfee were dismissed due to
lack jurisdiction, the FTC was dismissed because apparently the government has
immunity and Capital One was dismissed because they were served late. I have no legal skills and no money to pay an
attorney, I learn from Judge Broomfield’s rulings.
7) I submitted my renewed request for FCRA enforcement to Mr. McAfee. He failed to address the issue and he CONTINUED to actively protect Capital One.
8)
I filed a new suit (CIV 2004-1192) and named Capital
One and Target (dba Retailers National Bank) who also substitutes the credit
limit with the amount “most owed.”
9) Despite my lawsuits and my submission of my Capital One statements with the correct credit limits in 2003 to Experian and Equifax, both refused to correct the credit limits.
Did Capital One bribe Mr. McAfee?
Did Capital One blackmail Mr. McAfee?
Was Mr. McAfee ordered by a superior to protect Capital One? If so, by who? Why?
A criminal investigation should be
conducted to determine what exactly happened and James McAfee, General Counsel
and Senior Vice President, Federal Reserve Bank of
Why are the CRAs allowing Capital One to
report without the credit limits?
The FCRA requires that CRAs implement reasonable procedures to ensure maximum accuracy of consumer credit reports.
The CRAs have known for a number of years that Capital One categorically reports without the credit limits. Equifax even published a paper on it. All three CRAs were served with my complaint in 2003.
To
date, the CRAs condone this incomplete reporting, knowing exactly how the
scores for millions of consumers are devastated.
My correspondence with Mr. McAfee and the court filings are posted at my CreditCourt website at http://forum.creditcourt.com/discus/messages/803/3839.html.
2. Bank One (First
Bank
One reported discharged accounts as charged off with the delinquent balance and
refused to correct the reporting upon consumer disputes with the CRAs and Bank
One. Consumer Randolph Foster complained
with the OCC, the Bank One regulator. On
“The credit reporting that reflects, Charged Off with a balance, accurately shows that the balance was taken as a loss to the Bank and reflects your relationship with us at the time we received your notice of bankruptcy.”
Ms. Girmscheid copied the OCC and Mark Reuling, Senior Vice President, Bank One, and I scanned and posted her letter at http://forum.creditcourt.com/discus/messages/14/2538.html.
The
issues:
1) Bank One refused to report ACCURATELY that
the account was discharged in bankruptcy.
2) The FICO scores include this discharged, yet
reported balance in the B/L ratio.
3) An underwriter manually reviewing this credit
report would conclude that the borrower is a poor credit risk as he will be
subjected to Bank One collection efforts for the reported delinquent balances –
there was no mention of the bankruptcy with the Bank One reporting.
4) Other than suing, the consumers’ only remedy
is to PAY the Bank One discharged balance.
5) The fresh start that a bankruptcy is supposed
to provide is eliminated.
6) Even so-called consumer advocate attorneys
refused to take Mr. Foster’s case on contingency and he had to file pro se.
7) Due to the arbitration clause, Judge Schwab
dismissed those claims against Bank One.
Arbitration is the death of justice.
8) A nationally renowned FCRA attorney wrote to
me that he will not take these cases because a bankruptcy is the worst damage a
credit report can sustain. This is not
true at all. On
While creditors and CRAs argue that the credit reports can not be damaged when
a bankruptcy public record is reported, I have the documentation to prove them
wrong and I posted my
bankruptcy affidavit at http://www.creditcourt.org/bk-affidavit.htm.
Is it ok to cut off someone’s foot because he already lost a foot and is
disabled?
The scans of the credit reporting with the
balance as well as the re-aged reporting are attached to my Bank One press release at http://www.emediawire.com/releases/2004/3/prweb113432.htm.
These two Capital One and Bank One
intentional and malicious FCRA violations cause enormous damages to many
millions of Americans.
The
CRAs not only do absolutely nothing to ensure the accuracy of credit reports, but
they even verify the disputed data they KNOW to be incorrect!
And the regulators appear to be on the
corporate payroll and refused to uphold the law..
PLEASE take ENFORCEMENT ACTIONS immediately!
C.
Studying Credit Scores
My thoughts on specific questions in the FTC request for public comments.
1. How should the effects of credit scores and credit
based insurance scores on
the price and availability of mortgages, auto loans,
credit cards, other credit products, and
property and casualty insurance be studied? What is a
reasonable methodology for measuring the price and availability of
mortgages, auto loans, credit cards, other credit products, and property and
casualty insurance, and the impact of credit scores and credit based insurance
scores on those prices and availability?
Review
the rate sheets.
The effect is obvious:
People
with low credit scores are declined or pay substantially higher interest rates,
fees and insurance premiums.
Request
from creditors and insurers rating information such as the PEMCO insurance credit score rate sheet,
attached to my Bank One/First USA press release at http://www.prweb.com/prfiles/2004/03/23/113432/PEMCO-scores.jpeg.
“PEMCO
disguises the surcharge for the less than perfect credit scores as a discount. Notably,
even the very HIGH credit scores up to 799 are subjected to the premium
surcharge!”
The “discount tiers” are self-explanatory.
For mortgages the rate sheets with the scores are widely available. FNMA and FHLMC probably publish their score requirements for conventional mortgages, but many mortgage lenders and bankers impose their own minimum scores. They can supply mortgage rate sheets. Even FHA and VA loans require FICO scores.
Auto loan and credit card score requirements are not usually available and most creditors use modified scores, sometimes including data from the consumer’s application. These scores can not be compared to the FICO scores available to consumers and required for mortgages.
Since all creditors have to provide adverse action letters to consumers, they should be able to supply the FTC with statistics about declines.
If the industries refuse to supply rating and adverse action data and the FTC cannot compel release of this data, the general public as well as employees with access to rating data should be invited submit score based adverse action letters, rate schedules and explanations.
As
long as credit inquiries lower credit scores, underwriting guidelines should be
available to consumers PRIOR to the application, not after they were declined
and suffer from another score lowering inquiry.
2. An effect can often only be measured relative to a
counterfactual (that is, relative to some hypothetical alternative
situation). To determine the effects of credit scores on the price and
availability of credit products, what is a reasonable counterfactual to the
current use of credit scores? To determine the effects of credit-based
insurance scores on the price and availability of property and casualty
insurance, what is a reasonable counterfactual to the current use of
credit-based insurance scores?
There is no counterfactual. Everybody in
Rather than contemplate how and where to get data for useless statistics, I will describe some of the problems with credit scoring. Studying the effects of credit scoring on ECOA protected classes is not appropriate until the major problems with credit reporting and scoring are fixed.
Regulators
and legislators need to study how credit scores impact on our lives as
individuals.
D. Problems with the credit scoring and
reporting system.
I am all FOR automated credit underwriting.
However, it is up to the legislators and regulators to ensure that consumers get the score they deserve. It is essential that:
· the underlying credit data is accurate
· the score factors are reasonable (no lower scores for credit inquiries)
1. Credit should never be utilized to rate
insurance premiums since insurance is PREPAID and cancelled for non payment.
The insurers argue that fewer claims are filed by consumers with high scores. That’s rather obvious, since someone with low scores probably faces financial problems and will file claims even for small amounts.
·
It is not cost effective for wealthy Americans
to spend hours dealing with claim forms for a few hundred dollars.
·
Wealthy Americans are very aware that the filing
of claims will increase their premiums and they can afford to not file claims,
resulting in an overall savings to them due to lower premiums in the long run.
·
Wealthy Americans are more likely to have a
garage and live and work in low crime areas.
Insurers already rate according to zip codes, age and claim history, utilizing credit scores is not appropriate.
When people with low scores can not afford insurance, they won’t HAVE insurance.
In extreme cases consumers were approved for the mortgage, but could not close because they were unable to obtain homeowners insurance or the premium was so high that they no longer qualified for the mortgage.
Auto insurance is mandatory in most states. Especially in rural areas, consumers who can’t afford insurance have no choice but to drive to work without insurance, go on welfare or start earning or supplementing their income through illegal means. Few jobs come to the uninsured consumers’ homes, drug buyers will.
2. Credit scores do NOT predict defaults, but often
cause defaults.
Fair
Isaac and other score vendors claim that they proved in their studies that
scores accurately predict the probability of defaults.
However,
since ALL people in the
It
is only logical that the seriously flawed FICO credit scores, based on extremely
inaccurate data, are causing many defaults.
Case study:
Bill and Jose are coworkers, earn the same amount and they spend about the same for food, clothing and rent, they both have a $15K car loan and $5k in credit card debt.
They also have very similar credit reports, but Jose has a collection for a paid medical bill he disputed 6 years ago. The hospital ignored his dispute and assigned the $53 for collection. The collection was reassigned to new collection agencies, Jose doesn’t get any of their letters because he moved, and this one collection mushroomed to 3 collections on his credit reports, the last one was assigned just a few months ago.
Currently
FICO scores rate a collection by the date
assigned, not by the date of the default, resulting in very low scores.
Bill’s score is 728 – Jose’s score is 623
Bill gets a car loan at 0% -- Jose pays 15%.
Bill pays $150/month for insurance.
Jose pays $225/month for the identical insurance.
Bill pays no interest on his credit card debt. He takes advantage of the 0% balance transfers.
Jose pays 20% interest.
At the end of the month, Bill puts a couple hundred dollars in his savings.
Jose adds to his credit card debt so he can continue to make his payments on time.
Who
is going to default?
Billing fraud is rampant in
I
named Pacific
In recent years phone companies and many hospitals have made it a normal practice to ignore consumer disputes and documentation and to assign the accounts to collection agencies that also blatantly ignore consumer protections laws such as the Fair Debt Collection Practices Act.
Many
Americans are so afraid of damaging their credit rating, they pay bills twice
or pay accounts reported in error – if they can afford it.
Life sucks for those whose budget allows for paying bills only once.
Billing
fraud is as American as apple pie.
3. The Experian credit score statistics by
metropolitan area.
From
the
The top rated areas:
The bottom of
the barrel: Houston 655, Dallas 653
Why are
scores in Houston and Dallas over 50 points lower than in
Are the nation’s deadbeats congregating in
Maybe they’re not all deadbeats, but people
of color and immigrants?
Please ask Experian!
Important
note:
While it is interesting to compare the scores by area, these are the fraudulent snake oil Experian PLUS
scores no lender uses.
In my case, the PLUS score lives up to its
name. On
Few consumers understand that the only
purpose of the Experian PLUS scores is to maximize the Experian profits.
Consumers attempting to increase their
scores by reading the Experian PLUS score explanations will most likely LOWER
their FICO scores.
Experian’s clients (the creditors) get to
charge higher rates and fees for lower “real” scores.
4. Fair Isaac’s NEW Expansion score and credit
bureau
Fair Isaac recently released a new credit score based on data collected by its own new credit bureau. Fair Isaac apparently collects data about catalog sales, deposit accounts, payday loans and other accounts NOT reported to Equifax, Experian and Trans Union.
The
Fair Isaac
Fair
Isaac Launches FICO Score to Help Lenders Grow Presence in Credit-Underserved
Markets http://www.fairisaac.com/Fairisaac/News/Press+Releases/Fair+Isaac+Launches+FICO+score+to+Underserved+Markets.htm
“While an estimated 160 million Americans have documented credit histories adequate for calculating classic FICO credit scores, an estimated 50 million consumers do not.”
FICO® Expansion™ score at https://www.ficoexpansionscore.com/Content/About.aspx
When
I looked at the site, I was unable to find any information about consumer
disclosures, disputes or any consumer rights as provided by the FCRA.
5. A few comments on the impact of scores on
ECOA protected classes
Creditors discriminate because they know that it is less likely that they will get repaid when lending to colored people, immigrants, single women, etc.
Of
course they are right!
Women earn less than men, colored people earn less than whites, people in rural areas earn less than people in metropolitan areas. Residents of low income areas are poor credit and insurance risks.
Redlining works. Target marketing works. Discrimination works.
On average, consumers covered by the ECOA are more likely to default because they work for less pay and are offered fewer opportunities.
They often work two or three jobs and still barely earn enough to get by. They could be on social security, welfare or medication. They could be illiterate.
Considering
that even our well educated legislators and regulators do NOT have the
slightest idea how credit scoring and credit reporting works, why would these
“protected” people know how to improve their credit scores?
One
doesn’t have to be a genius to be able to realize that scores are designed to
overcharge the disadvantaged and to reward the wealthy with 0% interest rates
and the lowest insurance premiums.
Money, education and lots of spare time to
study credit scores or personal consulting services will most likely increase
credit scores.
I can substantially increase credit
scores for just about anyone, provided that:
a)
the consumer is willing and able to provide me with online
access for all 3 CRA credit reports as well as the 3 myFICO.com reports.
b)
the consumer is able to allocate about 5 to 10 hours within
a few days to answer my questions about the individual accounts.
c) the consumer is able to bring current all open delinquent tradelines and possibly revolving charged off accounts.
d)
the consumer has established open revolving accounts
or
the consumer has friends or family with established credit cards with good
account history willing to add him/her as authorized user (this is an
incredibly powerful “trick” to increase scores even for consumers with one or
two recently opened accounts.)
or
the consumer has the funds to open secured accounts. Secured accounts are not
nearly as effective as becoming an authorized user on accounts with long
positive history and major score increases will occur in 6 to 12 months instead
of instantly as soon as the authorized user account is reported.
e) the consumer is willing to sue the creditors and collectors who refuse to report accurately. Unfortunately, most of my readers and clients frequently have incorrect data verified and I have no magic wand. Since the FTC does NOT investigate consumer complaints, lawsuits are the only option.
It takes time, money, expert advice and all too often an attorney to get an accurate credit report.
It is important to understand that paying delinquent accounts can LOWER the credit scores and creditors and collectors rarely update to reflect accurate reporting with all credit bureaus after payment.
The disadvantaged are often NOT wealthy, do NOT have expert advice and do NOT have an attorney to file a lawsuit.
Why
does the FTC mislead consumers by stating that they can improve their credit
themselves?
Improving credit scores is far more difficult than preparing tax returns. After all, the IRS has a publication with extremely detailed instructions and examples for every situation. Fair Isaac disseminates lots of misinformation and propaganda, as I documented in my years of research.
I can prove that I get FAR better results than consumers who try to dispute and improve their scores themselves.
I started my CreditFactors.com subscription forum and posted much of what I know about credit and scores and I even answer subscriber questions. That’s how I learned how difficult it is for most consumers to understand credit scoring. Working people just don’t have the time to spend 50 or 100 hours studying and reviewing their reports.
I am continually amazed how many people are on medication and almost illiterate. As much as I want to help people, many are beyond help. It is depressing. My day has only 24 hours – I have to focus on those who can be helped. It shouldn’t be that way.
If ECOA-protected classes have less money, less education and/or are in some way disadvantaged, scores will result in negative or differential treatment. It is also unlikely that they can afford to pay a credit expert like myself. On average, I spent about 40 hours per client by the time I reviewed the CRA dispute results, another 10 to 20 hours for 2nd disputes, and in most cases at least one bureau continued to report incorrectly.
Recommended reading: “My Announcement to Creditors and Collectors” http://creditforum.org/showthread.php?t=496
6. Credit scores are designed to redistribute assets
– from the middle class to the wealthy - but are also likely to contribute to
the collapse of the economy
Despite the record low interest rates, bankruptcy filings have been at records highs. I see more and more people forced into bankruptcy by incorrect credit reporting and flawed scoring software.
Monetary policies in recent years have enabled just about everyone who can sign their name to buy a home, in most cases with no money down. Many of the unsophisticated first-time buyers with marginal or bad credit got ADJUSTABLE RATE MORTGAGES and overpaid for crummy houses.
It may seem to be desirable to have a population buried in debt, worried about making the next house payment, 2 car payments and 5 credit card payments, rather than having to deal with citizens concerned with their elected officials’ voting records and the Patriot Act.
However, as rates increase, so will the defaults, foreclosures and bankruptcies. The economy has been sustained by those record low rates and extremely liberal underwriting guidelines, resulting in ludicrous real estate appreciation, undue profits and cash out refis. At the same time *someone* managed to create a record budget deficit.
Unless we see massive wage increases, the bubble is going
to burst as interest rates increase.
DO THE MATH!
Fair Isaac developed the new Expansion Score to bury many of the 50 million previously unscored people in debt. Many will be enticed to buy goods and services they don’t need and can’t afford.
The purchases by the people in the “underserved” markets may help the economy in the short run, but those new debts can only turn into massive defaults.
You cannot undo the damage that has been done, but you can
try to minimize future damages.
How difficult can it be to enforce the FCRA and mandate a
few changes to credit score factors?
E. Conclusion
Since the Reagan days the rich are getting richer and the
poor are getting poorer. With very few
exceptions, the legislators voted against the American people and for corporate
Our food, air and water are poisoned. Our people kill and die for oil. We work more hours for less disposable income. Many millions have no health insurance. Why?
There are so many important issues, but credit reporting and scoring affect just about everyone, even the people who don’t need or want credit.
While I am submitting my comments to the FTC, I don’t expect the FTC to do anything but waste our hard earned money on useless studies. I have been submitting my comments and complaints to the FTC for many years and since the early 90s I have not received any response other than a complaint number and brochures filled with misinformation.
As part of my new strategy, I am not only posting this document at my websites, but I will be sending it to legislators in the Senate and House.
I am also well aware that corruption is rampant everywhere. I know that the politicians’ duty is to the corporations who paid for their campaigns. I have little hope that anyone will actually *do* something to enforce the FCRA and change credit scoring. But then again, I just have to try this to see what happens. Even if only 10% of the legislators have a conscience, we could see some serious changes for the better.
I am not “lobbying” legislators. I am not asking for favors or help. I am providing facts that some legislators may not be aware of. Everybody has to decide for themselves where the bucks stops and when to stand up for what’s right for the American people.
This is an opportunity to
I will be happy to provide documentation and answer any questions, preferably via e-mail to christine@bayhouse.com.
Sincerely,
Christine Baker
c: posted at http://www.fight-back.us/forum/index.php?showtopic=81
